Italy falls into recession amid slow eurozone growth

5 Feb 19

Italy’s economy tipped into recession at the end of last year and is likely to continue to shrink this year, according to official figures.

In the final three months of 2018, the economy contracted by 0.2%, following a 0.1% decline in the third quarter, the Italian statistics office said last week.

This is the third time the country’s growth has fallen into recession in the last decade.  

The country’s prime minister Giuseppe Conte said the contraction was likely to continue into 2019.

Italy’s statistical office said agriculture, forestry, fishing and industry had all contributed to the economic downturn, which a rise in exports failed to offset.

The country’s coalition government was forced to revise its 2019 budget at the end of 2018 after the European Commission raised concerns about the impact on the country’s debt levels – the biggest in the EU at more than €2.3trn.  

The debt burden as a percentage of annual economic activity is second only to Greece in the EU at 132%. Greece’s debt is at just over 178% of GDP.   

The ruling party wants to increase spending to meet election campaign commitments. But the Commission argued it should lower its deficit target as it would borrow too much.

The government wanted to spend money on an expensive welfare programme, which included reversing plans to raise the retirement age and a guaranteed basic income for poor families. The government’s plans also include tax cuts and further economic reforms.

At the end of last year, the coalition government identified about €3bn of additional money, without making it clear where they will come from, and lowered the cost of the new welfare programme payments to €7.1bn from €9bn.

The eurozone growth as a whole was sluggish at 0.2% in the final quarter of 2018, the same as the previous quarter.

Although, some eurozone economies had expanded more than expected, figures released by Eurostat last week found. France and Spain saw growth rates of 0.3% and 0.7% quarter-on-quarter, respectively.

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